Peer reviewed covered writing studies?

Discussion in 'Options' started by steve3052, Apr 25, 2008.

  1. I have heard of several studies showing that systematic covered writing generally results in 30 to 50 basis point performance loss vs. buy-and-hold, but with significantly less comparative volatility, and higher resulting return/risk ratio.

    Can anyone point me to these papers?

  2. Question is incomplete. It depends on many things including location of short strike, frequency of writing, etc.

    My own analysis: if ATM and writing is done every month, the typical maximum (but not likely) that one can do is 30% per annum (not compounded). That is why I consider CC as strategy not to waste time on.
  3. Good point!

    It would be interesting to see if they used monthly ATM strikes, similar to those of the Ibbotson study commissioned by the CBOE for the BuyWrite Index:

    The BXM Index:
    The CBOE S&P 500 BuyWrite Index (BXM) is a benchmark
    designed to track the performance of a hypothetical buy-
    strategy on the S&P 500 Index. Announced in 2002, the
    methodology of the BXM Index is based on (1) buying an
    index portfolio, and (2) writing the near-term S&P 500 "
    call option, generally on the third Friday of each month.
    held until it is cash-settled on the 3rd Friday of the following
    at which time a new one-month call option is written.

    From “Highlights from Case Study on BXM Buy-Write Options Strategy”
  4. How about writing LEAPs on good quality, high-dividend stocks (DOW, S&P components, ie)? I have messed with covered calls for seven years. I was most successful during the 1999-00 period when call premiums were ridiculously high. Of course, if I bought the stock outright and held, I would have made a fortune. One example that came to mind. I bought QCOM in the low 200's and sold a just-out-of-the-money call. Of course QCOM blasted up to 800 before splitting during this period. So, after considerable thought, I looked at the above-mentioned strategy.